With the October 1st deadline looming and no deal in sight, a government shutdown is likely. Since 1981, there have been 14 shutdowns, ranging in duration from 1 day to 35 days.
Historically, reactions from the financial markets have generally shown limited downside.
Throughout September, the VIX and VIX1D stayed below 17, signaling no investor panic.
Fed Chairman Powell cited labor market softness when delivering the ‘risk management cut.’
However, the economy and consumers remain resilient,
and until layoffs pick up, there are no immediate concerns.
With job market weakness not reflected in the broader economy, financial markets have moderated their expectations for future rate cuts (proxied by homebuilder performance) following the Fed’s September move.
In this Goldilocks environment, past winners retook the reins, and high-beta stocks continued to march forward. Large-cap and Growth stocks saw modest advantages.
Source: BAS' calculation
Following an August pause, AI trades have resumed.
Source: BAS' calculation
Supported by strong fundamentals, high ratings persist for the Magnificent Seven,
with some upgraded by our proprietary models.
Neither has broken the downward trend yet, but we see Value narrowing the earnings gap, while Small continues to lag further behind.
Investors continue to chase themes, and returns remain highly disparate, with certain sought-after pockets of the market outperforming others (chart performances as of 9/26/2025).
There are signs that sector returns are also being influenced by the AI theme.
(MTD as of 9/29/2025)
Driven by concerns over U.S. debt growth, gold received another boost from government shutdown volatility, reaching a record high in September.